Today’s tickers: ABX, GE, NOK, XLF, TSN, TMTA & BBBY
ABX– Barrick Gold – the reaction to news from Washington of some package agreement has sent the value of the dollar higher and the price of gold lower. Shares in Barrick gold have slipped 3.4% to stand at $37.19 but that seems to have provided opportunity for a creative investor to limit the cost of a smart bullish play on its shares. Having recently retreated to a 52-week low at $27.50 it seems that an investor has bought the January 37.5/45 call spread in 1,575 contracts. So far the trade costs a premium of 2.50 and would deliver a maximum profit of 5.0 per contract at and above a share price of $45.00 by expiration. In addition it appears that 3,000 call options were sold at the 55 strike at 90 cents that would lower the overall cost to just 70 cents for the trade. This strike just happens to coincide with the 52-week high for Barrick, which provided resistance to sellers throughout January to April. Indeed the current delta on these calls shows just a 15% chance of them landing in the money by expiration. By the time the share price reached the upper call the investor is facing the maximum gain of 5.0 points, which would require a continuation to a share price of $57.50 to erode the gains given the two-for-one ratio nature of this trade.
GE– General Electric – Shares have staged a significant turnaround from an early 1.5% decline and are higher by 3.3% at $25.40 with nearly 167,000 options in play. Broader optimism over a stimulus package hitting dealers’ screens seems to have outweighed earlier news from the company that the company is maintaining its 31 cent dividend, but has suspended a share buyback program. It also downgraded its forecast for earnings this year. CEO Immelt noted that the current weakness in the economic climate showed few signs of lifting. Call volume in the front month is rising at the 25 and 26 strikes where investors are banking on a rebound. October puts at the 20, 23 and 25 strikes took up notable volume while the January contract saw similar voting patterns at the 20 and 22.5 strike puts. The January 30 strike calls also saw heavy volume. Implied volatility on these options slipped to 59.3% from yesterday’s 65.6% and compares to a historic reading on share price of 78%. December 34 calls are in play at a premium of 9 cents a piece. GE’s shares last traded at the price on April 11.
NOK– Nokia Corp ADR- Looks like a chunky 20,000 call spread in the October contract between the 21 and 23 strikes is bolstering today’s volume. Shares are higher by 3.1% at $20.54 making this options play pretty optimistic. The net 55 cent cost of the trade implies a breakeven at $21.55 and a maximum gain of 1.45 per contract at and above the higher strike. Bulls have also rampaged into the November series with fresh buying at the 20, 21 and 22 strikes.
XLF– Options traffic in the hectic XLF fund didn’t necessarily match the euphoric response to the 2.6% rise in its shares today. Trading at $20.78 XLF options volume totaled 379,000 contracts by 2pm. Heavy call buying marked the early part of the session. Overall implied volatility declined from 71 to 65%, but a significant portion of today’s activity wasn’t so bullish. A huge put spread in the October contract involved 59,700 lots at each of the 19 and 17 strikes with the trade paying a 48 cent premium in what appears to be a defensive play. The strategy would make money at prices beneath $18.52. In the same month call options, some 29,333 contracts were sold at 12 cents at the 26 strike.
TSN– Tyson Foods Inc– Above average options volume is found in this poultry producer where a near 6% share price gain to $12.85 has elicited what could be a strangle in the November contract at the 15 strike call and 12.5 strike put. This might make sense given the fact that implied options volatility running at 87.55 seems elevated in comparison to its historical stock volatility at 48.2%. The volatility boost has accelerated of late thanks to the fact that shares in the company slumped to a 52-week low at $11.00 today.
TMTA– Transmeta Corp, a former competitor to Intel has put itself up for sale according to regulatory filings today stating that the decision was in the best interests of shareholders. The company transformed itself from microprocessor manufacturer to designer once it recognized that competing was fruitless. Shares broke out of their last 10-months’ trading range of between $11.26-$15.69 with a 205 leap to $16.20. We’re currently showing volume of 5,000 calls and puts at the February 15 strike, which would indicate positioning in a straddle. We’re still hunting for details on specifics, but this would be an interesting perspective with a buyer expecting either a bidding war or ultimate failure of the company. A volatility seller would be banking on $15.00 being an appropriate price tag with a deal tied up by the early part of 2009. Implied options volatility rose to 50% today. The trade went to mid-market and appears to have been executed at a price of 4.38.
BBBY– Bed, Bath & Beyond – following a positive revision of revenue and profit projections, the home furnisher rose almost 5% by lunchtime to stand at $32.20. Options activity hit our market scanner given the 28% reduction in the reading of implied volatility today, which declined to 40% and now compares to share price movement of 48.4% over the last year. Given that much of today’s option volume is trading to mid-market prices, which makes it less transparent what investors are doing, we did notice the sale of defensive 30 strike put contracts today on 3,000 lots of volume. The drop in volatility combined with the share price gain has hurt the 60 cent premium, which stands 60% lower than the premium cost of yesterday. Some 6,700 puts at the lesser 27.5 strike price in the same October contract were traded at one quarter of yesterday’s premium indicating perhaps that sellers are behind the drop in implied volatility.
